Lender Insight - How Fix-and-Flippers can win in a tough market

[Michael Braswell]

The challenge: Record-high labor and material costs, a sluggish resale market, and a shortage of skilled labor are squeezing spreads.

The opportunity: Tighten operations around three levers—Cost, Time, and Revenue—while de-risking each flip with disciplined underwriting and execution.

1) Cost: Tame Labor & Materials Without Gutting Quality

Value-engineer the scope

• Prioritize visible ROI items: paint, flooring, lighting, curb appeal, kitchens/baths (surface updates > layout changes).
• Replace, don’t relocate: keep plumbing and electrical in place when possible.
• Use finish tiers (Economy / Mid / Premium) per neighborhood comp set; avoid over-improvement.

Lock pricing early

• Get three-bid packages per trade with identical scopes, photos, and SKUs.
• Negotiate 30–60 day price locks on materials; ask for bulk-buy or “contractor pack” discounts.
• Use allowances (e.g., $2.50/sf flooring) with pre-approved SKU lists to control change orders.

Build a dependable labor bench

• Maintain a preferred-vendor roster (primary + backup) for each trade.
• Offer fast pay terms (e.g., net-7 on verified milestones) in exchange for pricing and priority.
• Test small jobs first; promote trades to your A-list only after on-time, on-budget performance twice.

Standardize to reduce waste

• Create repeatable finish schedules (same trim profile, faucet line, paint palette) so crews work faster and leftovers are reusable.
• Pre-kit jobs: one delivery per room (box includes all hardware, fixtures, and consumables).

Contracting discipline

• Use fixed-scope, milestone-based contracts with:
• Progress draws tied to inspections/photos
• No deposit or minimal mobilization
• Lien waivers at each draw
• Daily liquidated damages for missed deadlines (after grace period)
• Written change order policy with price + time impact before work proceeds

2) Time: Move Faster to Reduce Carry and Risk

Front-load planning

• Walk the property with all key trades before closing; finalize scope, bids, and schedule ahead of day 1.
• Pull permits early; choose scopes that avoid structural or major MEP reroutes when timelines matter.

Sequencing & overlap

• Schedule parallel workstreams (e.g., exterior/landscaping while interior demo proceeds).
• Use a Gantt chart (even a simple spreadsheet) to track trade start/finish, dependencies, and buffers.

Daily control

• 15-minute stand-up with GC or project lead each morning (photos + punch list).
• Two inspections/week: one quality, one progress vs. schedule.
• Keep critical spares on hand (breakers, valves, GFCIs, common trim, extra boxes of flooring).

Tech + templates

• Simple tools (Google Drive + shared photo folders, or apps like Buildertrend/Jobber) for scope sheets, punch lists, and photo proof.
• Use QR codes in rooms linking to the finish schedule for fewer “what goes here?” delays.

Timeline benchmarks (typical cosmetic flip)

• Close to demo start: 48–72 hrs
• Demo: 3–5 days
• Roughs + inspections: 5–10 days
• Finishes + punch: 10–14 days
• Total on-site: 4–6 weeks (heavy rehabs longer, keep under 4 months)  

3) Revenue: Sell Smart in a Slower Market

Underwrite conservatively

• ARV from adjusted comps within 0.5 miles and 90 days when possible; stress-test with –3% to –7% price drift.
• Use days-on-market (DOM) tiers to model carry (Base / +15 days / +30 days).

Renovate to the buyer, not your taste

• Design for the median buyer in your submarket. Neutral palettes, durable finishes, and a few standout features (statement light, tiled niche, upgraded hardware) to photograph well.

Pricing & launch

• Price at or slightly below the comp trend to spark day-1 traffic.
• Professional photos + video + floor plan are non-negotiable.
• Go live Thursday morning; host strong opening weekend events.

Targeted incentives

• Offer closing cost credits or rate buydowns via preferred lenders rather than large list-price cuts.
• Pre-list inspection + repair report on the counter to build trust and reduce renegotiations.

Fallback exits

• Pre-approve a wholetail path (light cleanup, then MLS as-is) if construction risk rises.
• Keep a BRRRR option: refinance to a DSCR rental if DOM stretches and cash flow pencils.
• Lease-option or corporate housing as temporary monetization if needed.